Court Bans Treasury From Sanctioning Tornado Cash

Last month, the Treasury removed the Tornado Cash software from OFAC's Specially Designated Person's (SDN) list, reversing sanctions on the software. At the same time, the Treasury attempted to stop a Texas District Court from issuing a final ruling on the illegality of the Treasury's sanctions, apparently seeking to retain the power of re-listing the software at a later point in time.

Yesterday, the Texas District Court ruled against the Treasury, which tried to argue that a final ruling was not needed in the matter, as the Department had already removed the sanctions.

According to the Texas court, denying the Treasury's moot arguments is warranted as the Department does "not suggest they will not sanction Tornado Cash again, and they may seek to “reenact[] precisely the same [designation]” in the future."

"Rather than acknowledge that the Fifth Circuit’s order required delisting Tornado Cash," the court argued, the Treasury states "that they exercised their 'discretion' in deciding to do so based on more general policy and legal considerations. They state publicly that they will continue to review the economic sanctions at issue closely in the future."

The Fifth Circuit had found that the Treasury had overstepped its authority in sanctioning immutable smart contract software, arguing that if the Treasury wanted a software to be eligible to be placed on OFAC's sanctions list, it would have to wait for Congress to amend the International Emergency Economic Powers Act (IEEPA), declining to engage in lawmaking.

While the Fifth Circuit's ruling may have effects on Treasury's ability to sanction similar software, the Texas court stated that how "future courts will interpret the Fifth Circuit’s ruling when reviewing other agency determinations is not the issue before this Court."

It remains to be seen whether the Treasury will continue to attempt to undermine free software development, but thanks to yesterday's ruling, Tornado Cash cannot be re-listed on OFAC's sanctions list under current laws.

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